MEMBER'S LOGINX
| Invalid Username / Password | ||||||||
| Invalid Captcha | ||||||||
|
||||||||
| Sign Up | Forgot Password? | ||||||||
India's Third Giant Leap
This Could be One of the Biggest Opportunities for Investors
- Home
- Todays Market
- Indian Stock Market News September 6, 2012
Where will banks get Rs 900 bn from? Thu, 6 Sep Pre-Open
Almost at the end of every fiscal, public sector banks approach their majority shareholder (the government) with a request for more capital. A number of these banks do not use their capital efficiently and now with higher provisioning for non-performing assets (NPA) as well as the new Basel III norms, these banks will need a larger chunk of capital from the government. According to the Reserve Bank of India (RBI) Governor D Subbarao, the government would need to infuse Rs 900 bn in public sector banks in order to maintain its current shareholding after the new Basel-III norms come into force. If it is willing to reduce its stake in these banks to 51%, the burden may come down to Rs 700 bn.
According to the central bank governor, the government may issue recapitalization bonds as against an infusion of common equity. Indian banks have so far raised equity capital of around Rs 520 bn through the primary markets over the last five years. Therefore, raising an additional Rs 700 bn to Rs 1 trillion over the next five years from should not be too much of an issue. There is an extended period spread over five years (Jan 2013-March 2018) for Basel III implementation. This gives sufficient time to banks to plan their capital-raising efforts over the period. The banking regulator had put out the final guidelines on Basel-III norms and its implementation in May 2012, as seen below.
| Basel III implementation | ||||||
| Minimum capital ratios (as a % of Risk Weighted Assets) | 1-Jan-13 | 31-Mar-14 | 31-Mar-15 | 31-Mar-16 | 31-Mar-17 | 31-Mar-18 |
| Minimum Common Equity Tier 1 (CET1) | 4.5 | 5.0 | 5.5 | 5.5 | 5.5 | 5.5 |
| Capital conservation buffer (CCB) | - | - | 0.6 | 1.3 | 1.9 | 2.5 |
| Minimum CET1 + CCB | 4.5 | 5.0 | 6.1 | 6.8 | 7.4 | 8.0 |
| Minimum Tier 1 capital | 6.0 | 6.5 | 7.0 | 7.0 | 7.0 | 7.0 |
| Minimum Total Capital* | 9.0 | 9.0 | 9.0 | 9.0 | 9.0 | 9.0 |
| Minimum Total Capital + CCB | 9.0 | 9.0 | 9.6 | 10.3 | 10.9 | 11.5 |
Data Source: RBI
According to RBI estimates, Indian banks would require additional capital of Rs 5 trillion to meet Basel-III norms by March 31, 2018. That includes non-equity capital of Rs 3.3 trillion and equity capital of Rs 1.8 trillion. Now with an additional capital infusion, the return on equity of the Indian banking system is expected to decline over the short term on the adoption of Basel-III norms. The average return on equity for the banking system has been about 15% for the last three years (as per RBI data). We concur with the central bank governor that the effective implementation of Basel III norms would make Indian banks stronger and more stable. This will help them have a sound capital cushion which will help them deliver value to the various sectors of the economy that desperately need financing. However, if the capital is to be raised through equity issuances, investors would need assurance of sustainable return ratios and better asset quality.
For information on how to pick stocks that have the potential to deliver big returns, download our special report now!
Read the latest Market Commentary
Indian Share Market Update: Top Gainers and Losers
ABOUT EQUITYMASTER
Since 1996, Equitymaster has been the source for honest and credible opinions on investing in India. With solid research and in-depth analysis Equitymaster is dedicated towards making its readers- smarter, more confident and richer every day. Here's why hundreds of thousands of readers spread across more than 70 countries Trust Equitymaster.
PREMIUM PRODUCTS
QUICK LINKS
POPULAR TOPICS
- Multibagger Penny Stocks
- Basics of Value Investing
- Benjamin Graham
- How to Invest in Gold
- How to Invest in Silver
- Best Stocks to Buy Today
- Best Small-cap Stocks to Buy
- Best Bluechip Stocks to Buy
- Guide to Penny Stocks
- How to Invest in the Share Market
- Warren Buffett - The Value Investor
- Pick the Best Multibagger Stocks
TRENDING TOPICS
Copyright © Equitymaster Research Private Limited (formerly Equitymaster Agora Research Private Limited).
Whitelist | Refer | Terms | Privacy | Contact | About | Sitemap
Equitymaster Research Private Limited (formerly Equitymaster Agora Research Private Limited) (Research Analyst)
SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Email: info@equitymaster.com. Website: www.equitymaster.com.
CIN:U74999MH2007PTC175407
Name of the Compliance & Grievance Officer: Ms Sonal Ramachandran
Telephone: +91-22-61434003 | Email: compliance@equitymaster.com
LEGAL DISCLAIMER:
Investment in securities market are subject to market risks. Read all the related documents carefully before investing.
Registration granted by SEBI and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors.
All rights reserved. Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.
Equitymaster Research Private Limited (formerly Equitymaster Agora Research Private Limited) (Research Analyst) bearing Registration No. INH000000537 (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA, Canada or the European Union countries, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.
Equitymaster requests your view! Post a comment on "Where will banks get Rs 900 bn from?". Click here!
Comments are moderated by Equitymaster, in accordance with the Terms of Use, and may not appear
on this article until they have been reviewed and deemed appropriate for posting.
In the meantime, you may want to share this article with your friends!